This is a summary of how the settings work, not tax advice. If you are unsure whether or what to charge, speak to your accountant – the cost of getting it wrong is considerably higher than the cost of asking.
The first decision: prices inclusive or exclusive
If you sell to consumers, prices are normally entered and displayed including VAT. If you sell business to business, exclusive is more usual. Changing this later on a live shop is disruptive, because it changes the meaning of every price you have entered. Decide before you start.
Where tax is calculated from
WooCommerce can base tax on the customer's billing address, their delivery address, or your shop's address. For UK consumer sales the shop address is usually right; if you sell abroad, this needs more thought.
Rates and classes
Set the standard rate, then use tax classes for anything different – zero-rated goods such as most food and children's clothing, or reduced-rate items. Assign the class per product. The most common error we see is a zero-rated product left on the standard class, quietly charging VAT that should not have been charged.
Delivery
Delivery charges are usually taxable, and at the rate of the goods being sent. WooCommerce has a setting for this and the default is not always what you want.
If you are not VAT registered
Turn tax off entirely rather than setting a zero rate. A zero rate still displays tax lines on invoices, which looks wrong and confuses customers.
Test before launch
Place test orders for each situation you sell into – a standard item, a zero-rated item, delivery, and an overseas address if relevant – and check the arithmetic on the confirmation. Do this before the first real order, not after your first VAT return.
